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If the changes proposed by the CFPB become final, brokers will be allowed to charge borrowers and receive compensation from creditors, putting them on a more even playing field with mortgage banks. As such, it might appear that the broker model is poised for a comeback.

While the proposals certainly make the broker model more feasible, the changes that have occurred in the area of compliance and the liability faced by creditors may pose a considerable challenge to a true broker comeback. Indeed, the precedent has been established that lenders may well face direct liability to consumers for the actions of brokers. The CFPB’s third-party servicing rules also place significant responsibility on creditors originating through brokers. The possibility and extent of liabilities for creditors has been greatly enhanced by Dodd Frank, as is the need to in effect take responsibility for compliance through all origination channels. Hence, there may well be hesitation–well founded–by creditors originating loans through brokers where the creditors do not have the level of control they might desire over origination practices. This is especially true if the broker’s exposure is limited from a practical perspective. In short, creditors may hesitate to embrace the broker based origination model.

What is clear is that any broker based business models in the future will need to have a significant commitment to compliance moving forward. This will be necessary as much from the creditors’ perspective as it will be from the perspective of regulators. In fact, I would expect that the extent to which brokers become more prevalent than they are now, it will involve broker based compliance initiatives equal to or exceeding those of creditors, who will have to be convinced that they are not adopting the practices of originators whose activities are less scrutinized or controlled than those of their own employees.